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Fliers Pinched as Airfares Take Off

Bill Catlette has a new rule of thumb for his business trips. If the destination is 500 miles away or less, he'll hop behind the wheel instead of fly.

Lucidio Studio | Photographer's Choice | Getty Images

Recently, Catlette, a business consultant, drove even farther, when he found out a round-trip flight from Memphis to Jacksonville would cost $900 for a seat in coach.

"They're totally putting the squeeze on us," Catlette, who regularly flies out of Memphis, says of Delta , the city's dominant airline. "It's not that I like driving that much, but at some point, it's nuts. At least I don't have to take my shoes off."

Fares were up this year, from facilities such as Memphis International Airport to Atlanta's Hartsfield-Jackson to Boston's Logan. Don't expect them to drop any time soon.

The volatile price of jet fuel, multiple airline mergers that have winnowed competition and a determination by carriers to not offer more seats than there are passengers to fill them have let airlines boost prices and their bottom lines.

"While nobody wants to pay more for anything, including airline tickets, we have to remember that airlines are businesses," says airline and travel analyst Henry Harteveldt. "They're going to do whatever they can to earn a profit." (Read more:What Airlines Can Do to Win Customers, Build Loyalty)

But federal transportation data show the number of passengers flying U.S. carriers dipped 0.3 percent between May of last year and May 2012. Fare watchers say that indicates some fliers may have had enough.

(Editor's note: Overall, total fare prices for fall travel are higher, despite some carriers' actively advertised fare sales.)

"I think leisure travelers have been pushed to their breaking point in the current economic conditions," says Rick Seaney, of FareCompare.com, which analyzes ticket prices. "Airlines are on that bubble, where adding another couple of bucks is going to hurt demand."

Inflation Changes Picture

When adjusted for inflation, airfares are actually lower than they were in the mid- to late 1990s. But many fliers, who'd grown used to steep discounts during the depths of the recession, are now suffering a bit of sticker shock as airlines try to make up lost ground.

"I haven't seen a domestic flight below $600 in forever," says Jeff Pearce, of Fayetteville, Ga., who owns his own business. He drives when he can for business and vacation.

Average domestic fares increased 4.8 percent in the first three months of 2012 compared with the same period last year, according to the Transportation Department's Bureau of Transportation Statistics. Adjusting for inflation, that's 2.1 percent higher than last year and 10.1 percent higher than in 2009.

Among the largest 100 airports in the U.S. (excluding Alaska, Hawaii and Puerto Rico), Flint, Mich., saw the biggest increase, with the average domestic fare jumping 23.7 percent in the first quarter compared with last year, according to the most recent data available from the Bureau of Transportation Statistics.

Other airports in the top 10 include Cincinnati, which had the highest average domestic fare in the nation, at $526.25, and where ticket prices rose 13 percent, and Pensacola, Fla., which had a fare bump of 15 percent to $446.70 on average.

In a market such as Cincinnati, a large number of premium-paying business trekkers is likely a key reason for higher average fares, transportation analysts say. But the high cost of fuel has lifted fares in many cities across the country.

Delta spokesman Trebor Banstetter says fares are determined by a range of factors, from the date tickets are booked to the specific route. "Like all airlines, Delta has been adjusting to a significant increase in the price of jet fuel." Delta spent $12 billion last year on fuel, $3 billion more than in 2010, he says.

High fuel costs have helped spur airlines to focus on routes that are money makers, and pare seats to make sure there's demand for the flights they offer — and less need to discount fares.

"Higher fuel prices were a factor that put upward pressure on fares and downward pressure on capacity," says John Heimlich, chief economist for Airlines for America, a trade group that represents most major U.S. carriers.

But competition also plays a big role in dictating price, and there's less of it following multiple industry mergers: Delta linking with Northwest; United, with Continental; and Southwest , with AirTran. United's parent is United Continental Holdings .

"Certainly, consolidation … (has) reduced competition and increased the pricing power of airlines in certain cities, on certain routes," says fare watcher Seaney. Noting that a ticket from New York to Los Angeles can cost the same as a flight from New York to Washington, D.C., he says it's "pretty clear that … (it) has little to do with distance and everything to do with competition."

An analysis released in August of a possible merger between US Airways and American Airlines said federal officials should determine whether all the mergers in the industry are leading to higher fares before approving yet another one. (More: How an American-US Airways Merger Could Impact Travelers.)

"I can't say for sure mergers are responsible for higher fares, but it's something that deserves a closer look," says Diana Moss, vice president and director of the American Antitrust Institute, which co-authored the report with the Business Travel Coalition.

The report says a preliminary analysis of pre- to post-merger fare changes show that on 70 percent of routes where Delta and Northwest once competed, fare increases were above the average for all flights at the departure airports. Similarly, pre- to post-merger fare increases were above the average at the departure airports on more than 90 percent of routes where United once competed with Continental.

Mergers are also having an impact on airports, Moss says. Hubs that once were home to many carriers are now increasingly dominated by a single airline. That carrier then has more power to boost prices. Monopoly of an airport also makes it harder for other airlines, including low-cost carriers that tend to drive down prices, to move in, Moss says.

"When an airline dominates the hub, it's extraordinarily hard for another airline to enter," Moss says. "As we continue to eliminate choices, as airlines become bigger at these fortress hubs and low-cost carriers become less able to discipline fares, that argument that consumers have lots of choices is harder and harder to make."

Seaney, of FareCompare.com, says it is the lack of competition on particular routes that has the bigger impact on price.

"It isn't just about airport dominance of an airline," he says. "Even an airline with only a handful of cheap-priced routes from an airport can force the dominant airline into discounting, as long as they have a few flights a day."

But Heimlich of Airlines for America says that the price of an airline ticket has risen much less than other products, despite the industry's soaring operating costs. And he says mergers can benefit consumers, by increasing their flight options, even bringing fares down.

"For a series of these consolidations, the levels of air service and fares paid for them after the merger were … better than they would've been if the airlines had continued as separate brands," Heimlich says.

I'll Drive, Thanks

Still, higher fares are discouraging some fliers.

"Our local boarding traffic is down a bit," primarily because of higher fares, says Larry Cox, president and CEO of the Memphis-Shelby County Airport Authority. With "fewer airlines, fewer non-stop options, prices go up. Therefore, some people don't travel anymore, or they try to find alternate ways to meet their travel needs."

The strong presence of low-cost carriers Frontier and AirTran led to significant passenger increases at Milwaukee's General Mitchell International airport from 2009 through much of 2011, says airport spokeswoman Pat Rowe, as travelers who otherwise would have flown out of Chicago's O'Hare chose the Wisconsin airport to save a few dollars.

Since then, Frontier has cut back service out of Milwaukee, and AirTran's hub disappeared when it merged with Southwest. The airport's average domestic fare jumped 11.6 percent between the first quarter of 2011 and the first three months of this year.

Despite that, Milwaukee's average ticket prices remain lower than most other airports in the country, and Rowe says the airport will likely continue to benefit from the presence of eight carriers, including Delta and Southwest, all vying for passengers.

"When you look at the airports that have the highest average fares, they're airports that generally are dominated by one carrier," Rowe says, adding that Southwest and Delta are increasing their service in Milwaukee. "And we have six other airlines. … When we have a good mix of strong airlines, that works to keep fares at a competitive rate."

Ultimately, it's the passenger who will have the final say, analysts say.

"It used to be you could pick up some reasonable fares if you shopped a little bit, but that's less the case," says Catlette, the frequent business traveler from Tennessee.

Now, he consolidates his business trips and drives whenever he can. "When you're gone, stay gone," says Catlette, who lives in Collierville, Tenn., and has driven the roughly 365 miles to Atlanta three times in the last few weeks. "If you can bolt two or three trips together, you often times can save some money."

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